Tuesday, January 8, 2013

Bill Ackman either lacks imagination or has a touching faith in government

There is however one quote in the article which exposes the flaw in Bill Ackman's position:

“We can’t imagine how the SEC or the Federal Trade Commission or any other relevant regulator will ignore what we have said.”

Either Bill Ackman lacks imagination or has a touching faith in government or both.

In the comments people might put a list of things you might think that Government could never possibly ignore but do. I will start with climate change. There are plenty of others: the range of government failures covers the whole political and policy spectrum.

seems to me that when there is an crime being committed i.e. an existing law being broken with several precedents of successful govt action, there is more pressure for the govtto take action (almost like responding to a whistleblower). For things like policy change, congress will have to enact laws and then develop the administrative processes for taking actions - a much higher bar.

1. With regards to the government issue, I learned long enough back not to make your short or long catalyst heavily dependent on government action. I'm reminded of Falcone and Lightsquared.

2. The Bb article suggests that Pershing really didn't have solid internal agreement on a catalyst, and that the initial short began after Greenlight asked a question on the 1Q12 conference call (short interest spikes in early June, probably as word spread around the sewing circle). It makes me wonder if initiating the short was an instance of confirmation bias gone wrong (Einhorn must think this is a short, so our thesis must be right).

“I would think that it must be a trade – this silly company was never anything but. I’m telling you, I could stuff a square of ex-lax into a pop-tart and make a better weight loss drug. This thing is turning into an ugly bar brawl over a $5 whore of a stock. Time to take a page from Snagglepuss.”

Inside trading for Senators, Members of Congress, and the Executive Branch. It's hard to imagine a more egregious example and had it not been for 60 Minutes' program on this, the STOCK Act would have never been seriously pursued. Unfortunately, despite passing in both houses, its implementation continues to be delayed by Congress.

Sorry if this is a repeat comment, but I think it is silly to compare the FTC's or SEC's inaction to congressional inaction on gun control or global warming. The true "comps" are other companies that the SEC has been warned about, where the warnings were ignored and the companies subsequently blew up. John, would you mind shareing the names of companies you blew the whistle on and the SEC did nothing?

The risk for regulators might be more akin to SOPA. If HLF mobalizes 3 million soccer moms (and they tell 2 friends...), I can easily see the public 'fight' portrayed as destroying employement. HLF has no choice to let this play out in the public's eye.

John - perhaps he has a touching faith in the ability of his money to buy the necessary coverage and lobbying? On the one hand, there is a lot of hand-wringing about revolving door between government and the private sector. On the other hand, we pooh-pooh the ability of billionaires to get the government to do something?

What would it take to start an FTC investigation? It doesn't even need to result in HLF's being found guilty. Even a credible rumour of an investigation might be enough to spook the stock to levels where Ackman can exit without too much egg on his face.

I agree with the last comment. Nobody can underestimate the connections of these big wealthy guys. Remember ACKMAN's vision in GGP bankruptcy. None of the trusts that owned the MBS were allowed to liquidate. Also until that time collateral behind the trusts were remote from parent in case of parent's bankruptcy. Ackman's vision literally changed that legal precedent. Remember his famous words in that bankruptcy case " I have talked to the judge. I have heard what he had to say. We think he is the right judge at the right time"

Hmmm....Payday loans, Title loanslawsuit lending, rent-a-centerother mlm (amway etc), debt reduction- negotiation scams, phone psychics,work at home scams, lotteries, video professor. Pretty much anything advertised on daytime tv commercials, ( overpriced power scooter chairs paid by medicare, term life insurance, liberty medical etc)I've seen alot of new sketchy ads for something called reverse mortgages, not sure how that operates but they advertise at the same time as other rip off commercials. I don't know if commercials are more consumer regulated in aus, but just watch the us commercials that play late at night or during the price is right weekday mornings that target older or un(under)employed people.To the govt's credit they did shut down enzyte, so it does happen once in a while.http://en.wikipedia.org/wiki/Enzyte

The comment about Einhorn's book is fitting. If you've read his struggle with Allied, you get a feeling about the ugly trench warfare this can become. The difference being that Einhorn never sized his position to potetially destroy him.

By definition a pyramid is unsustainable but that's maybe like saying in the long term we're all dead (or that in the long term, all governments must pay their debts). Avon has been publicly traded for 49 years, after all.

Agree with you that the gov't is unlikely to act, but think Ackman was just taking license. The company clearly comes across as a pyramid scheme offering a product that holds no strategic advantage over its competitors. It's a bad bet to be long this company over the longer term. Time is against them, as it is against all pyramid and ponzi scheme operators.

I'm surprised no one has commented on the weird coincidental collusion between Einhorn and Ackman. Ackman and Einhorn "traded short ideas over many years," according to the Ackman MBIA book Confidence Games. On top of that, here is the timeline according to the Bloomberg article you mention:

2011: Ackman came up with an HLF short thesis after being tipped by none other than the other of Confidence Games sometime last year

Early 2012: Pershing decided to short the stock IF they could find the catalyst.

May 2012: Einhorn calls in to ask the questions exactly along Ackman's short thesis

"Ackman began shorting the stock before the call was over."

Is the more reasonable conclusion here a) Einhorn and Ackman came up with this idea completely separately, and Ackman used this break to create a $1B short, or b) they discussed the idea beforehand, and both profited on each others' actions?

Perhaps they they covered their proverbial tracks, but the timing stinks as much as HLF's business model.

That is to say that a huge percentage of those who try the brand abandon it in less than a year. That is to say that the LTV of a customer/distributor is not conducive to a long and steady stream of stable, corporate cashflows .... Churn rates at the bottom of the HLF pyramid are simply too high for this company to sustain itself.

My comment is... With over 70,000 Nutrition Clubs, this man tasted ONE SHAKE in ONE CLUB, in ONE CITY, made by arguably new club owners. I agree that Bill Ackman is incorrect in his claims against Herbalife, but I disagree with the comment that the Herbalife products "taste bad". You just had a bad experience, with someone who doesn't know how to make a WOW shake. Why don't you try visiting some of the ENGLISH clubs. I am still in awe that as SICK as we are as an OBESE people in USA, and globally that ANYONE would choose to pick on a company that has changed so many lives. Herbalife is helping a global obesity epidemic and a global underemployment epidemic. Something that Wall Street AND the government, don't even pay attention to! My suggestion is that Bill get on the Herbalife products ASAP! Then he will KNOW why Herbalife is growing by a BILLION dollars a year! #jealous

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